The Leading Indicators

by Gregg Easterbrook

  Movies, thriller stories—there’s always a hidden hand, a master villain, a secret committee orchestrating events. If there were a committee of illuminati covertly controlling world events, they aren’t doing much of a job. But just as no one was in charge of the mess on the freeways, no one is in charge of the international economy. The president, the chair of the Federal Reserve, the military-industrial complex, those European bankers with their fine Champagnes—nobody has control over the economy, which autonomously does what it is supposed to do: increases the output of goods and services without regard to individual welfare. It’s not that the plan isn’t working. There is no plan.

  Tom looked for a moment at the view, reflecting that in less than a year he’d slipped from a plush corner office at a firm that was a Wall Street darling, to a small office with no window at General Electric headquarters in Connecticut while he was a contract hire filling a six-month post, to a cubicle at the Internet start-up ZiZi, which hoped to allow people to broadcast personal television networks using smart phones.

  In the wake of the financial market freeze that began in September 2008, ZiZi went out of business. Tom was now helping place what was left of the company into boxes so ZiZi could vacate the premises. He unplugged high-tech servers, stuffed with advanced microscopic circuits whose function hardly anyone understands, surrounded them with bubble wrap and placed them into shipping containers. On one table was a large box of glossy pamphlets touting the new firm’s generous pension plan, which now would never exist. There was a sticky note attached to the box, instructing that its contents be recycled.

  A few months before this moment Tom had been called to the office of Jeff Immelt, CEO of General Electric. There was no reason for him to have facetime with the top executive unless he was being offered a senior position, a real post with security and benefits, not just an extension of his glorified-temp status. Tom’s résumé showed him well qualified for a senior position, and he’d been receiving glowing evaluations in his current trial run. He walked happily through the broad, chrome-trimmed halls of General Electric headquarters, a building raised in an era when it was thought that major corporations would be more stable than nations.

  Immelt’s Chief of Staff met Tom in the executive reception area. He wasn’t an assistant, he was the Chief of Staff, to whom a Deputy Chief of Staff reported. Even charities and think tanks were embracing such inflated White House–style titles.

  Instead of escorting Tom in to see Immelt, the aide motioned him to a side room. “Change of plans,” he said. “You’re being let go.”

  Immediately Tom knew he never should have mentioned the appointment to Margo. Now he would seem at fault in some way, as if he’d blown his chance at a secure, high-paying job.

  Tom tried responding in corporate psychobabble, of which there is a surprising amount. We should empower the stakeholders by inviting them into the conversation is the sort of thing modern corporate managers say when what they mean is, Let’s go through the motions of consulting community groups before we crush them. Tom told the aide, “If there is a deficiency issue in my performance, I would be happy to discuss a remediation schedule.”

  “No, sorry, you’re out,” the aide replied. He wore his blue blazer indoors. Any place the CEO might stroll past, the men keep their sport coats on and the women keep on the jackets of their power suits, though Immelt himself walked around in khakis without a tie. Once suits meant you were the boss and jeans meant you were the help. Now jeans mean you are the boss.

  “The board just imposed a white-collar slots freeze,” the aide explained.

  “But the stock market is in good shape, the GDP is solid, the Bear Stearns disintegration was just a bump in the road.”

  “Company internal analysis shows the U.S. economy is overextended. We are hunkering down.” He paused. “The board feels it’s better to let top people go now when they can find something, rather than wait till the recession hits.”

  “Recession!” Tom was shocked at that word. Stocks, real estate, banking—all had been go-go for years, with no clouds on the horizon. Hedge funds and private-equity managers were complaining they had so much liquid capital they couldn’t find enough assets to invest in.

  “I’m sorry that as a contract hire you don’t have any vesting, which means no buy-out,” the aide said. A Wharton grad carrying two mortgages—residence and vacation home—the boss’s Chief of Staff seemed nervous, as if wondering how long till he, too, was motioned into a side office.

  Tom was close to speechless, so listened as the aide laid it out for him: “Our internal data show a major housing bubble based on subprime liars’ loans securitized into ersatz bonds—the buyers and the brokers are both cheating. Plus crazy-bad leverage at the big pinstriped Wall Street houses. Big financial firms are declaring paper profits based on debt swaps and derivatives that are phony as three-dollar bills. Top corporate bonuses are way too high—too high for the system to sustain itself, even if you don’t care about stepping on the fates of average people. The hedge funds’ big numbers are not coming from productive investments, the hedge funds are simply being used as covers for insider trading. Next there will be a huge run-up in federal borrowing for bailouts and giveaways to interest groups. The ratio of government debt to GDP will soar, unless the politicians show some courage, and can you name one politician in Washington who cares about anything other than personal power and campaign donations?”

  The aide made a whisper motion, though no other person was present to overhear. “Mr. Immelt was in Washington last week and tried to talk to the treasury secretary about this. The treasury secretary got angry and practically threw Mr. Immelt out. The White House wants to cut taxes for the rich even more, and expand the Iraq War into Iran. No one in his right mind would do those things if a recession was coming.”

  A few months later, Treasury Secretary Henry Paulson would stand at the White House press room podium, visibly shaking, and say the American economy would collapse within days if Congress did not give a $700 billion bailout, without oversight, to big banks and Wall Street. Paulson would tell a journalist he picked $700 billion based not on econometric analysis but because he thought it was the highest number that would not make people laugh.

  To work his contract job at the General Electric campus, Tom had been living in an extended-stay hotel, far from the family, and expensing the cost. On the day he was let go, he received a legal-looking notice saying the company would pay for one additional night in the hotel, but would charge him to ship home his box of miscellaneous office stuff. Page after page of tiny-type disclaimers followed the notice. He had to initial each page, as a General Electric lawyer watched.

  Shortly after Tom was dismissed in Connecticut, the venture capital firm backing ZiZi called, and soon Tom was in another hotel far from wife and girls. The start-up’s idea seemed weird, but so did the idea for the Kaypro, a 1980 invention that was the first computer light enough to carry. Who needed that? Tom grimaced when ZiZi offered him mainly stock options at a $1 strike price, little regular pay. The family was burning through savings fast—he wanted salary. But the lore of the high-tech economy is fired one day, rich the next. He took the offer and plunged into work, often at the office till ten P.M. then back at seven A.M. There was nothing at the hotel except watching television anyway.

  In September 2008, Tom had been in Manhattan doing a road show with investment bankers. Startups meet with investment bankers to see which proposes the best terms to underwrite an initial public offering, and ZiZi was ready for its IPO. Ready financially and in terms of market buzz, at least: even ZiZi employees couldn’t explain what a “personal television network” might be. If the IPO went according to ZiZi’s projections, Tom would become a millionaire after all.

  In the morning, Tom and ZiZi’s founder met some investment bankers who said the new company should be worth $1.2 billion. At that price, Tom’s options would have left him, Margo, and the girls set for life. Then the investment bankers b
egan gaping at the crawl on CNBC. Lehman Brothers, a citadel of money and privilege, had just admitted its books were cooked and gone bankrupt, the largest corporate failure in United States history.

  Over lunch, another set of investment bankers said that considering the sudden equities downturn, ZiZi should have an initial capitalization of $400 million. Two-thirds lost in a few hours, but at that number, Tom, Margo and the girls still would be out of the woods. By late afternoon at the market close, the Dow Jones having fallen five hundred points in a single day, the last investment banking firm they called on said ZiZi was worthless. No one would buy any start-up equities until Wall Street recovered. A week later the venture capitalists, who lived in California beachfront homes and received million-plus bonuses for shuffling paperwork, pulled the plug on ZiZi, and Tom was unemployed again. The venture capitalists offered him a thousand dollars to help close down the firm. He accepted.

  The man who founded ZiZi was the only other person left in the office, and like Tom, was filling boxes with leased equipment to ship back to a warehouse. He was fit and slender, slightly graying, turned out in khakis and unlaced Timberland boots such as pop stars wear, plus a plain white T-shirt that had cost him ninety dollars in a Beverly Hills boutique. Once in a while the office phone rang—someone asking if ZiZi was accepting job applications.

  When the word had come from the venture capitalists about closing ZiZi, people in the office cried, or pounded their fists, or broke down. The firm’s founder was blasé. He sat for a moment drumming his fingers, shrugged, then pulled a bottle of forty-year-old scotch from a desk drawer. He broke the capsule, opened the bottle and passed it around, with plastic cups. After the contents vanished, he produced another unopened bottle, that one fifty-eight years old, broke another capsule and passed more around. When Jesus turned water to wine, the wedding guests were amazed that the host had saved the best for last, rather than serving the good stuff first and then pouring cheap wine once everyone was drunk. If the host had said, “Actually, I ran out of wine, so the Son of God did me a favor by turning some rainwater into Chateau Montelena,” who would have believed that story? Most likely Jesus, too, was drunk, the kind of point they tend to skip in church.

  Involved in start-ups of a dozen firms, two of which were big moneymakers and the rest busts, ZiZi’s founder lived his life in economic turbulence and considered this normal. He had moved in the last twenty-five years to New York, then Atlanta, then Chicago, then New York, then Palo Alto, then Falls Church, then Waltham, then Pasadena, then Seattle, then New York, then Seattle, then Menlo Park. Thrice divorced in the process, he rarely saw any of his several children. He’d made, lost and made again his fortune, owned a magnificent twenty-meter sailboat that he called “the raft,” and kept up all support payments.

  “Tom, help me with these,” he said. There were numerous boxes, each containing twenty-four unopened BlackBerrys, intended to distribute to staff that was never hired. Though the devices had to be returned, most likely they would be written off and junked as already obsolete. Up in Canada, researchers were racing to add more keys to the next-gen BlackBerry. The thirty-eight keys, plus miniature joystick, weren’t enough.

  “We got screwed,” Tom said, of nothing in particular.

  “Luck is what it is,” the man replied. “From Wall Street and romancing investors I’ve known some really rich people. They insist on believing they are rich due to their hard work, inspired ideas and superhuman personal merit. That way they can think it’s fair that they have far more money than they will ever know what to do with, while others cry themselves to sleep at night over a few hundred bucks. The rich man wants to believe he’s rich, and the poor are poor, based solely on what each deserved. Me, I acknowledge whether you become rich or poor is at least half luck. I’ve had good luck. With this start-up, we had bad luck. Whether your luck is good or bad, Tom, don’t think either is any reflection on you.”

  He paused. “I don’t like firing people, you know. And I’ve fired people all across the continental United States.”

  “You did a good job with this company,” Tom said, aware the man was broadcasting loneliness on all known frequencies. Tom was also aware that, close to a panic state over money, he was comforting a man without a money worry in the world.

  “The free market sucks but is better than the alternatives,” the man replied.

  Tom said, “People should realize how much harm we’re doing to our souls.”

  “Should, agreed. But won’t happen. The free market makes people heartless. Has to, in order to function properly. Go to any high-demographic zip code, knock on any door. The people there, even the PC ones who contribute to NPR and want to save the manatee, in their hearts all that really matters to them is they are on top. They’ll pay five hundred dollars a night for a resort room without blinking, and at the same time expect the workers at the child-care centers where they leave their children to act grateful for six-fifty an hour. The folks who claim a social conscience and have it made, do they give money away? They put additions on their houses, is what they do.”

  The man sealed a box with packing tape and affixed a FedEx waybill. He jotted a cell number on an elegant business card, made of expensive stock, on which was printed only his name. He handed the card to Tom, saying, “I’ll head to Cambridge next week and check out biotech start-ups spinning off from MIT. Life-extension drugs are a hot play. Americans complain nonstop about their lives, and would spend anything to prolong them. The soup is terrible and such small portions, eh? If I hear of any start-ups that need a good front man, I’ll let you know.”

  Tom waited alone until a courier service came to pick up the boxes. The soup is terrible and such small portions—that old Vaudeville line could sum what it means to face life.

  The empty office, a week before buzzing with people and hopes, suggested a stage that had been struck following the final performance of a show. As Tom was departing, a team of illegal immigrants arrived: they would work through the wee hours cleaning so the office space could be shown to potential customers in the morning. The cleaners were happy with midnight work, as this paid double-time. Some had taken great risks crossing a desert to arrive in a country where there was so much going on, offices needed to be vacated in the middle of the night. Tom drove to an extended-stay hotel that he’d need to leave in the morning.

  Chapter 5

  November 2008

  Record decline in housing prices.

  U.S. motor vehicle production: 8.7 million.

  Economy contracts for third consecutive quarter.

  The townhouse was nice, adequate certainly, though Margo found it unsettling to have walls that were shared with someone else. Whose were the walls?

  As a college student, then as a footloose bachelorette, then in the place with Tom in Lincoln Park, she’d not only wanted her own home but come to view the detached home, framed by driveway and lawn, as symbolic of the reestablishment of the norm she knew in girlhood. Her first awareness of the world came in a house separate from other houses. When Margo became the mother of a new family of her creation, she desired the same equation of house-equals-home.

  They were able to afford the rent for the second floor, so no sound of walking on the ceiling. And on the second floor, she heard less of the slamming. Car doors slammed throughout the townhouse complex at all hours. Why is it people think a car door must be slammed to close? Initially, Margo sought a logical explanation. Perhaps people arriving at two A.M., rather than close their car doors quietly in consideration of others, slammed them as a way of announcing they’d worked extra-long, or been out partying, or felt angry that others slept while they weren’t yet home. Eventually she realized people slam car doors for this reason: because they have brains the size of acorns.

  Being on the second floor reduced the parking-area sounds but meant no deck or patio. Margo couldn’t walk outside and sit reading the newspaper. There was no yard, no place of their own to toss a ball or light off smuggled
fireworks on the Fourth of July. The yard and deck were a small loss—no one needs a yard. But they’d had a fabulous house and now had only an adequate townhouse. The family was going in the wrong direction.

  The girls sensed there was something not right about the sudden decision to sell the sort of house they assumed every girl lived in, except for the kind of children one hears about on television. Margo and Tom told them the family was moving in order to live closer to their new school. The girls did not want a new school. It wasn’t so much that they grasped the distinction between leaving private education for public. Rather, it was that they were deep into the social scene at Pinnacle Ácademy, and just getting good. Navigating that school’s complex cartography of tween and teen social markers was, so far, the biggest accomplishment in life for Caroline and Megan.

  Any adult would have known immediately the real cause of the move was money. But neither of the girls ever asked about the family situation with money, a topic children from all backgrounds tend to view as either distant and unimportant or very, very scary.

  Before the move, Margo overheard her daughters whispering about whether Mom and Dad were getting divorced. She and Tom became excessively sunny, like actors in a dish-detergent commercial. Divorce was the nighttime dread of many kids at Pinnacle. The children from divorces were put in the middle of arguments they had nothing to do with, employed as pressure points. They could side with one parent and be scorned as disloyal by the other, or side with neither and be found insufficiently loving by both. Not a lot of attractive options there from the children’s standpoint. A few at the school overcompensated by boasting about how really great it was their parents finally split up.